Stage Based Valuation Premia

2019

Peyvand Bayzae, Mining Valuation Research

Stage-based valuation premiums refer to the difference in valuations, whether observed through multiples or discount rates, that might be consistently exhibited by groups that share common attributes or risks. The attributes or risks could be common geography, stage of life cycle, size of capital expenditure requirements, or even an underlying project. Using the prevailing valuation of the research coverage as of February 2nd, 2019 (or a time-series if needed) the following types of observed discounts or premia will be illustrated utilizing valuation parameters of the associated listed mining companies: Stage of Life Cycle Value Progression; Exploration Premium; Gold Premium; M&A Rerating; Megaprojects’ Financing Discount; Minority Discount; and, Geography. The industry’s capital allocation practices have been subject to criticism, perhaps due to the industry’s track record in acquisitions, as well as delivery of its capital projects. By recognizing or understanding what risks the capital markets might be pricing, and how it might be pricing those risks, and by incorporating the resulting insights into the industry’s strategic and valuation-related decisions, the current practices should naturally be enhanced. Otherwise and unless the industry improves its capital allocation practices, there is room for activist investors to continue to act as the catalyst for change.
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